Transaction fees are fairly horrible with traditional payment providers, especially when it comes to smaller transactions, as there is often a minimum fee.
Let us, for example, consider the purchase of a music track costing 1.49 euro from our store. Paypal charges us 3.4%, plus a 35-cent fee for each transaction. So, in this case, Paypal would get 40 cents from this transaction: a 27% fee.
Now charges that high aren’t going to be sustainable for any low-margin business (they are probably fine if you are selling Bolivian marching powder, though!). To get round the problem, we at digital-tunes.net charge our customers a 35-cent surcharge on Paypal payments, to help us offset the exorbitant fees.
With bitcoin, transaction fees are entirely optional. The currency’s protocol allows you to set the transaction fee to zero if you so wish, however this might mean it takes a bit longer to process.
The idea behind bitcoin transaction fees is that the computers running the network (in an entirely distributed manner) get to keep the transaction fees associated with the transactions they have successfully processed.
It’s quite likely that, in the future, we will see the fees be determined by the market, and if you want your transaction processed as fast as possible, you will have to pay a premium. Currently, transaction fees are not the primary motivation for people to run the network, but that’s an entirely other topic. A useful graph showing the fees charged by the entire network over time can be viewed here.
The article offers other points of interest.